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The Economics of Innovation book summary
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A summary of all required chapters according to the course manual, excluding chapters 1 and 2 as these are simply indroductory
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3. Basic concepts of innovationTo start the book provides the following simple, linear, model of innovation.
(back to ch. 19)
The main links in the linear model
What is innovation? How does it differ from invention?
Definition of innovation: “The successful exploitation of new ideas”.
- Inventions are the culmination of research activity and are ideas, sketches or models for a new
product or process, that may often be patented.
- Innovation is the commercial application of an invention.
What is creativity? How does it differ from invention?
- Creativity; the process or activity
- Invention; the result
Research and development (R&D)
In an industrial context most corporate spending on R&D should properly be described as D rather
than R.
- Basic research produces new scientific knowledge, hypotheses and theories which then
produce patentable inventions.
- Development work takes this knowledge and the patents as its raw materials and develops
new/improved products and processes.
Is there a difference between innovation and technological change?
Technological change = innovation
Innovation =/= always technological change
Different forms of innovation
Product or process innovation?
- Pure process innovation; changes the way in which a product is made, without changing the
product itself
- Pure product innovation; vice versa
Different types of product innovation
- Product proliferation; filling up a product space with lots of varieties of the same product. This
in order to segment markets (price discrimination) and to make it hard for others to enter
- Innovative prices; A new way of charging for a product or service
Other innovation adjectives
- Incremental innovations
- Radical innovations
- Architectural innovations; putting components together differently
, Protecting inventions
Patents, registered designs, trademarks and copyright.
All make the invention public, so secrecy is another form of protection.
Two different theories of creativity
1. Exceptional creativity requires the creative mind to develop complete autonomy
2. The combinatorial theory of creativity; exceptional creativity calls for an ability to bring
together habitually incompatible ideas and combine them in a way that gives deep new
insights.
Two different views of the consumer
1. Passive consumer
2. Active consumer
Measuring innovation
5 ways:
1. Describe innovations in detail; provides depth and detail, but is time-consuming
2. Count innovations
3. Questionnaire survey of innovative companies
4. Count the number of patents issued (patent=invention=/=necessarily innovation)
5. Company accounting data on research and development
- In small companies there may be no R&D entry in company accounts
- High R&D expenditure does not imply innovation
- Companies may fear that a high R&D expenditure account may hurt its stocks
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